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Why I Hold Value and Growth
I always strive to hold both growth and value stocks in my portfolio to capitalize on rotations from growth to value and vice versa. I see diversification between growth and value to be more important than between sectors. Holding low-beta value stocks can decrease portfolio volatility while still providing returns to investors through steady appreciation and dividend payouts. Recent events have led to most value opportunities being found in the aerospace & defense, financial, and energy sector. That said, here are my top 5 value stocks for today, January 15th.
1) Lockheed Martin Corporation (LMT)
Lockheed Martin Corporation (LMT) is a defense behemoth, with subsidiaries including Skunk Works, Lockheed Martin Aeronautics, Lockheed Martin Missiles and Fire Control, Lockheed Martin Rotary and Mission Systems, Sikorsky Aircraft, and Lockheed Martin Space Systems.
Skunk Works is probably the most famous division of Lockheed and is responsible for designing planes such as the P-38 Lightning, U-2, SR-71 Blackbird, F-117 Nighthawk, F-22 Raptor, and F-35 Lightning II. Currently, the F-35 program provides roughly 30% of Lockheed’s revenue and will continue to generate sales through government contracts until at least 2070. Lockheed has an excellent economic moat due to the difficulty in developing complex fighter planes such as the F-35.
Interest in Lockheed Martin Space Systems has recently grown after Cathie Wood of ARK Investments announced the creation of a space exploration fund. ARK purchased 33,600 shares of LMT through the ARKQ fund on January 14th.
Lockheed Martin currently trades at a P/E of 14.63 which is lower than its historical P/E in the 15.5 to 18.5 range. The Company also trades at a P/FCF of 28.57, PEG of 2.08, P/S of 1.5, and P/B of 19.35. Lockheed’s dividend is at $10.40 yielding 2.99%.
2) General Dynamics Corporation (GD)
General Dynamics Corporation (GD) is another major player in defense; it has been selling submarines to the United States Navy since the year 1900. General Dynamics contains ten divisions including General Dynamics Electric Boat, Gulfstream, and General Dynamics Land Systems.
The Company provides a diversified arsenal in airplanes, submarines, tanks, guns, and missiles. The most well known General Dynamics products are the F-111 Aardvark, F-16 Fighting Falcon, Tomahawk missile, SM-65 Atlas ICBM, M1 Abrams, and GAU-17 minigun. The Company also operates in the commercial sector through Gulfstream Aerospace where it provides jet aircraft.
General Dynamics is trading at a P/E of 13.76, on par for its historical P/E. The Company has P/FCF of 31.47, PEG of 1.83, P/S of 1.54, and P/B of 3. The dividend yield is 2.86% at $4.40 per share.
3) JPMorgan Chase & Co. (JPM)
JPMorgan Chase & Co. (JPM) is one of the largest banks in the world at a market cap of $430 billion. The Company manages $3 trillion in assets through its operations in investment banking, asset management, private banking, wealth management, and treasury services divisions.
JPMorgan has seen growing net income since 2013 and remains dominant in its sector. The Company has continued to innovate in the fintech space through investments in Bitcoin and the acquisitions of WePay and InstaMed. In December of 2020, JPMorgan announced approval of a $30 billion share repurchase program to occur in 2021.
JPM trades at a P/E of 17.74 which is higher than its historical P/E between 8.5 and 14. The Company has P/FCF of 12.85, P/S of 6.15, and P/B of 1.8. JPM currently yields 2.55% with a dividend of $3.60 per share.
4) The Toronto-Dominion Bank (TD)
The Toronto-Dominion Bank (TD) is one of the largest banks in Canada. The Company has reliably grown revenues over the past four years while operating more conservatively than other banks. Notably, TD Bank was the only major Canadian bank to maintain a AAA credit rating during the Great Recession.
The Bank previously owned the American brokerage TD Ameritrade but sold it in 2006. The recent acquisition of TD Ameritrade by Chales Schwab has resulted in Toronto-Dominion owning a portion of Schwab.
Toronto-Dominion has made an effort to increase dividend payments since the 2008 Crisis and has increased its dividend for over four years. The Company currently pays a dividend of $2.49 for a yield of 4.16%. TD trades at a P/E of 11.53, in-line with its historic P/E. The Bank has a P/B of 1.53 and P/FCF of just 0.61.
5) Berkshire Hathaway Inc. (BRK-B)
Berkshire Hathaway Inc. (BRK-B) is the widely diversified company of Warren Buffet--the “king” of value investing. The Company owns GEICO, Duracell, Dairy Queen, BNSF, Fruit of the Loom, Pampered Chef, NetJets, and several other companies. In addition to its subsidiaries, Berkshire owns large stakes in Apple, Bank of America, Coca-Cola, American Express, and Kraft Heinz in its top holdings. Berkshire Hathaway has also notably invested in Visa, Snowflake, Amazon, Mastercard, and StoneCo.
Berkshire currently trades at a P/E of 15.85, slightly lower than its traditional P/E. The Company has a P/B of 1.35 and P/FCF 20.29. Berkshire is known for not paying a dividend and not splitting its class A shares but is still a good value opportunity for non-dividend investors.
Honorable mentions: BAC, VIAC, EADSY, BA, BIIB, GILD, CVX, INTC
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